Our Financial Makeover Series
talks about personal finance basics and lets you figure out what applies best
to your own unique situation.
In Part 1, we suggested to open
a no-fee online checking account. The point is to avoid fees as much as
possible, especially the devastating recurring version.
In Part 2, we talked about the
pleasures of budgeting and how it can allow you to spend more on things you
truly love. We proposed a no-fee savings account as one tool to organize in
that fashion.
Today, we’ll talk about
how budget choices can make you feel great. We hope you’ll see it can be an
amazing way to exercise your freedom!
The Wonderful Power of Budget Choices
For most people,
budgets are boring and restrictive. For us, our budget is fun because it helps
us make wise and sometimes tough financial decisions so we can realize more of
our dreams.
Try to view your budget
as an essential versatile tool at the heart of each of your personal finance
decisions. It’s the ultimate key to make everything work together. It’s not
only about dollars and cents but rather more about dollars and sense.
As clearly as possible,
your budget should be a concise representation of your financial reality and
should help you manage your financial operations. Many may be afraid to face
that reality and suffer from guilt. They prefer to live in denial and stick
their head in the sand than to truly find out the extent of the damages.
But a budget can be the
most efficient tool to know where you stand and the best way to start doing
something to make things better. Your budget can give you the means to improve
and help you take back power over your finances.
After retroactively
accessing your present situation, an efficient budget will highlight your
options to choose and can be the first step towards your financial well-being.
The objective is not to
become perfect but rather to have the means to take decisions that can make things
better. At worst, you’ll know more about the impacts of your financial choices.
Like we elude to in our
last post of this series (Part 2),
ultimately, budgeting should and can
allow you to spend more money on things we truly love.
The Questionable Anti-Budget Cult
For many people,
keeping a budget seems appalling. Some are even utterly against any form of budgeting.
They think a budget will only limit their freedom. They prefer to let money
flow.
We believe quite the
opposite as we have learned that ignoring money matters could have dire
consequences. We also think having a budget is a great way to exercise your
freedom of choice.
In our country, money
is a fact of life. If you choose not to follow your use of it, you could fall
victim to it. You are probably looking for trouble is you decide to join the
naïve and unrealistic anti-budget cult. If you decide not to mind it, chances
are your money will only flow away.
Following your budget
is kind of like taking place in the driver’s seat. You have to learn the ropes
and practice to become respectably good at it. You won’t be able to go 200
miles an hour because there are some rules to respect. You may encounter dumps
on the road and have accidents along the way. But at least, you’ll be in
control and have better chances to safely get to your destination faster.
On the other hand, not
following a budget is kind of like driving blindfolded. And unfortunately, only
a rare few can develop Jedi abilities to compensate. You have the option to
make budget-informed decisions or to let others and circumstances determine
your faith. Undoubtedly, the use of money in our society is a convention you
can not ignore.
We’re not saying you
need to be obsessed about budgeting. Rather, we’re just saying that to some
extent, you ought to be mindful about your money choices and take care of your
own financial matters as no one will do it for you.
Get Rid of Boring and Obtain More Fun
In the end, anti-budget
predispositions may only be acceptable as a compromise. For instance, you could
budget a pre-set amount to cover required expenses and mindlessly spend the
rest. Spending leftovers any way you like could certainly offer some level of
enjoyment and a sense of staying free.
Then again, you’ll get
to some version of what we already talked about in Part 2: an exciting motivating budget is all about having more pleasure.
The great thing is that
a well set up budget can allow you to choose and have more of that so desired fun
and pleasure.
It can also allow to
slash as much as possible in the boring stuff. After all that, a good budget
won’t be boring at all. It’s could be quite the opposite as it can allow you to
swiftly get through things and free yourself of a lot of the boring and
tedious.
Qualities of Efficient Budgets
To inspire you, we’ll
now talk about the general qualities of an efficient budget that can help you
make better choices and wiser financial decisions.
Conservative
First and foremost, a
good budget should be as realistic as possible yet conservative.
It’s not always
possible and easy to set up a budget with precise figures. That’s why we
conservatively estimate most budget items, especially more variable ones.
Being conservative can
allow you to deal with bad surprises and have buffers to keep things in the
black. So, when in doubt, stay on the safe side by inflating your estimations a
little for expenses and reducing then for income.
Your Own
You’re the best person
to identify your own needs and wants so your budget should be personal. There
is a lot of different ways you can make your own budget work. It should only be
as detailed as you want or as you need. It should give you an idea where your
money is going and provide avenues to improve.
Only tracks pertinent
income and expenses best suited for your situation. Adapt your budget to your
situation. Sometimes, too much information or details will only be in the way
and make you waste time. So, stick to relevant stuff.
For instance, you could
choose to focus on discretionary spending and only follow those expenses in
detail. And you could only do it for a while and stop after you feel it’s under
control. The great thing is that you get to decide.
Simple and easy to maintain
To keep at it, your
budget must remain somewhat simple and easy to maintain.
Even though I like to
mingle a lot with ours, your budget should not take you a lot of time. In fact,
an efficient straight-to-the-point budget should help you save time while
easing your financial worries.
We like to stick to
about 12 main categories and automate things as much as possible.
Nowadays, you can use
technology and other easily accessible tools just at your fingertips to achieve
so. It’s possible to almost instantaneously track down every dollar you earn
and spend.
Balanced
When it comes to
financial matters, it’s not necessarily easy for everyone to avoid going in the
red.
Keeping a budget is
often the first step to avoid repetitive deficits. It allows you to analyze your
earning and spending and learn from it.
Try to balance things
out and avoid that dreaded red ink. As stated earlier, staying conservative can
help. Over the years, we have learned to look for and now love any surplus.
Remember that no real
way around the Basic Budget Equation exist. Over the long haul, your income
must be greater than your expenses.
Flexible
A good budget must also
be flexible and adapt to your ever-evolving situation.
We’ll talk about it
more next time but, buffers and a solid contingency plan are essential in these
matters. A flexible budget should also account for inflation and allow
efficient cash flow management.
Step 3 Homework
After
your first account is up and running, most online banks also allow you to open
similar accounts with just a few clicks. Because you’ve already done that in Part 2, you can
easily open a savings account for a fun project.
Make sure
to set up at least one but, when all is said and done, you should think about
opening separate accounts for each of your exciting project.
Eventually,
you could think about a period that could really be fun in your life and set up a
retirement account. We’ll get back to that later in this Financial Makeover Series.
In the end, the key may
be to change your mindset about budgeting. Think of how much more fun money a
solid budget could offer you.
It could give yourself
more freedom to spend more on what you want. Also consider that what you want
may not be what you ultimately need to be truly happy.
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